Health Check: How Prudently Does Silicon Laboratories (NASDAQ:SLAB) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Silicon Laboratories Inc. (NASDAQ:SLAB) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Silicon Laboratories

What Is Silicon Laboratories's Debt?

As you can see below, Silicon Laboratories had US$45.0m of debt at December 2023, down from US$529.6m a year prior. But on the other hand it also has US$439.2m in cash, leading to a US$394.2m net cash position.

How Healthy Is Silicon Laboratories' Balance Sheet?

According to the last reported balance sheet, Silicon Laboratories had liabilities of US$163.6m due within 12 months, and liabilities of US$70.8m due beyond 12 months. Offsetting these obligations, it had cash of US$439.2m as well as receivables valued at US$29.3m due within 12 months. So it can boast US$234.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Silicon Laboratories could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Silicon Laboratories boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Silicon Laboratories's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Silicon Laboratories had a loss before interest and tax, and actually shrunk its revenue by 24%, to US$782m. To be frank that doesn't bode well.

So How Risky Is Silicon Laboratories?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Silicon Laboratories lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$53m of cash and made a loss of US$35m. Given it only has net cash of US$394.2m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Silicon Laboratories that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.